DTB rights issue raises the bar for Habib Bank’s higher stake interest

Habib Bank of Pakistan may have to set aside more cash to acquire the targeted 26 per cent stake in Diamond Trust Bank following announcement of a rights issue by the Kenyan lender.

DTB announced on Monday that it will be selling 22 million additional shares in a shareholders’ cash call expected to raise between Sh2 billion and Sh3 billion.

This means that for Habib Bank which currently holds 11.9 per cent shares of DTB to achieve its target of owning slightly more than a quarter of the Kenyan lender, it will have to take up its full rights and additionally set aside more cash for the acquisition bid.

In its annual report disclosure on intention to acquire more DTB shares, Habib, which is Pakistan’s largest lender by market share, said it had put aside Sh3.6 billion to buy 31.5 million shares of the Kenyan bank.

“If there are any rights or bonus shares issues (by DTB), this number would change,” said Habib Bank in last year’s annual report to shareholders.

The acquisition of 31.5 million extra shares would have seen Habib gain an extra 14.1 per cent stake in DTB.

Habib Bank will have a chance to acquire a higher stake in DTB through buyout of shareholders who will not exercise their rights in the cash call.

READ: Pakistan's biggest bank in bid for 26pc DTB stake

The Pakistan lender is seeking to strengthen its foothold in Africa’s emerging markets through its investment in DTB.

“Any rights not taken up (will) be offered on terms and conditions as are determined by the directors and notified to the shareholders,” reads part of the Monday statement by DTB declaring the rights issue.

Habib Bank’s appetite for DTB’s stock is likely to offer comfort to the management of a fourth successive rights issue in eight years. The cash call comes two years after the last one which raised Sh1.8 billion.

DTB is majority-owned by Aga Khan Fund for Development (AKFED) with a 17.32 per cent stake.

AKFED is also a shareholder in Habib Bank. The principal owners participated fully in the last rights issue.

“The bank will issue 22 million shares for a rights issue which we believe will be at a ratio of 1:10, and raise Sh2 billion and Sh3 billion,” said Standard Investment Bank.

DTB’s capital adequacy ratios as at September last year were well above the current minimum regulatory levels and also the new ones that are set to come into effect in December this year, indicating that the recent demand for cash injection is not to meet statutory requirements.

The bank has previously turned to its owners for fresh capital injection following rapid growth of its business. DTB has operations in Kenya, Tanzania, Uganda and Burundi. It recently relocated to its Sh700 million headquarters on Mombasa Road.

DTB’s share price at the stock market did not change on Tuesday holding at Sh219 per unit despite the rights issue disclosure. The stock is trading 21.7 per cent higher than its price three months ago.

During the last rights issue which was priced at Sh74 per share the market price held at Sh95, underlining investors’ confidence in the stock which paid out a dividend of Sh1.90 per share in 2012 and Sh1.70 in 2011.

Banking stocks have been on the rise with investors expecting high returns from the sector.

As at September last year the bank had grown its net profits by a third, posting Sh3.9 billion up from Sh2.9 billion an year earlier.

Central Bank disclosed that the industry made total pre-tax profits of Sh124.1 billion last year up from Sh107.1 billion an year earlier.